Robots Expose Firms to Compliance Risks

Growing pressure for investment firms to cut costs by
automating jobs may leave them open to expensive compliance
problems.

Thats the warning that PwC and McKinsey delivered in
two separate research notes last month on robotic process
automation, or using robots to replace work done by humans.
Without proper governance, the benefits of digital labor
can quickly vanish, PwC said in its report entitled, Who minds the
robots?

In a big shift in the last six months, firms are spending
more on automation software as a cost-cutting measure
reminiscent of their decision to move jobs to cheaper locations
abroad, according to Kevin Kroen, partner and lead of
PwCs financial services digital labor practice. He sees
workforces becoming smaller and more highly analytical as a
result.

Robots do break [and] there are going to be areas
where judgments need to be made, Kroen said in an
interview. You need to make sure you have the right
people minding what is happening in the actual operational
environment. It is a different skill set.

McKinsey agreed in its report, saying firms should embed
critical business-analysis and digital skills into
their next-generation operating models.

Firms that have humans checking the work of the robots may
become overwhelmed as automation soars, making it important for
control points to be established early, according
to PwC, which says retrofitting may be expensive while
executive credibility may be lost if dealt with too late.

Glitches in technology, such as high-speed automated
trading, can be expensive to investors, too. For example, in
the flash crash in May 2010, about $1 trillion
vanished from the market in 15 minutes as securities prices
plummeted, the consulting firm said.

Regulators, meanwhile, have expressed concerned about the
automation trend. The U.K. Financial Conduct Authority warned
in a Business Plan 2016/2017 report that
firms reliance on complex infrastructures increases
potential for problems and outages of key systems.

And while theres increasing appetite to replace humans
in some functions in financial services, many chief executive
officers acknowledge the technology still needs work.

Like other firms, we are looking at artificial
intelligence and machine learning as the next step
forward, Alasdair Haynes, CEO of pan-European trading
group Aquis Exchange, said in an interview. But we are
still a long way from replacing humans in the chain.

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